VF Corp.’s winning streak continues

Investors bid shares to record high following results, 2012 outlook

NEW YORK (MarketWatch) — VF Corp., a company considered a barometer for apparel industry demand, reported Thursday a fourth-quarter profit that surged more than four times, helped by global demand for its products ranging from North Face jackets to Vans shoes.

Investors earlier bid up shares of the Greensboro, N.C.-based company
VFC, +0.24%
to an all-time high of $148.84, on a day when the retail sector traded lower.

In all, VF’s stock has risen about 68% in the past year, well above the 6.7% increase in the S&P Retail Index (RLX) and gains for most of its industry peers including Jones Group Inc.
JNY
Nike Inc.
NKE, -0.56%
Columbia Sportswear Co.
COLM, -0.99%
and Lululemon Athletica Inc.
LULU, -1.25%

The latest share gains came even as VF gave a 2012 forecast that fell short of Wall Street expectations, hurt by a declining euro and higher pension expenses.

For one, VF dispelled investor worries that warmer-than-average weather during the quarter may have hurt sales of North Face, its biggest label that’s on track to generate $3 billion in sales in 2015.

North Face sales rose 22%, including a 24% increase in North Face Americas. Excluding the impact of currency translations, European sales of the label were up 12%, while Asian sales jumped 41%.

In contrast, many other retailers and suppliers of cold weather merchandise have slashed prices to clear their stock of sweaters and coats.

“The momentum in North Face just continued to grow even in the face of warmer climate,” said Chief Financial Officer Bob Shearer in an interview. “Consumers are looking for differentiated products.

“It’s one thing that we consistently see, whether it’s our jeans business in the mass channel or North Face. They are willing to pay for something that’s new and different. We are not anticipating a climate that’s more promotional,” he said.

The company also eased investor worries about Europe, which accounts for about 20% of its total business.

VF saw some slowdown in sales in Southern Europe, which it said is a small part of its total in the region. Demand, however, remained “relatively healthy” in Northern and Eastern Europe. Total European sales excluding the impact of currency translations rose 14% and management expects sales in the region to grow more than 10% this year.

Echoing industry counterparts such as Abercrombie & Fitch Co.
ANF, +0.46%
VF said the declining cotton costs also are expected to boost gross margin in the second half of this year after a decline last year. Shearer said the company plans to keep price increases it took in its U.S. jeans business last year.

Across the board, VF saw higher sales across different product categories, with jeans sold via the U.S. discount mass channel one of the few weaker spots where sales were “slightly down,” Shearer said. VF sells to retail customers ranging from Wal-Mart Stores Inc.
WMT, -0.34%
and Target Corp.
TGT, -0.09%
to Macy’s Inc.
M, +0.73%
and Saks Inc.
SKS, -1.86%

The Vans skate shoe label, for instance, saw sales up more than 20%. Other brands including Lucy women’s athletic apparel and Reef sandals also saw double-digit increases, while spring 2012 bookings for North Face are up 15% globally.

The Timberland brand, which the company bought in September, saw sales up more than 10%. That rate slowed from the third quarter’s, hurt in part by warmer weather. SmartWool socks revenues grew 20%.

“We see The North Face, Vans and Timberland setting benchmarks for product innovation, quality, and style in the global outdoor and action sports markets,” said Standard & Poor’s analyst Jason Asaeda. “We also see VF benefiting from category leadership in jeanswear with Lee and Wrangler.”

Overall, VF’s fourth-quarter profit rose to $257.3 million, or $2.28 a share, from $54.2 million, or 49 cents, earned in the final three months of 2010. Revenue rose 37% to $2.91 billion, including $549 million contribution from Timberland.

For 2012, the company forecast a profit of $9.30 a share. Lower euro and other currency translations are expected to cut into profit by 41 cents a share, while higher pension expense is expected to dent earnings by another 19 cents a share.

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